Cash-strapped Pakistan has reportedly cut its trade deficit by a whopping 43 per cent to USD 27.55 billion in fiscal year 2023. The government’s tight controls on imports played a significant role in this significant reduction, as it was intended to stabilize the country’s severely low levels. Foreign exchange reserves and reducing the risk of default.
According to a report in The Express Tribune newspaper, the trade deficit was set to widen to US$48.35 billion in the last fiscal year 2022, raising concerns about the country’s economic stability.
However, the government’s strict administrative measures on imports and the impact of floods in 2022 had a negative impact on the domestic economy, resulting in a provisional growth rate of only 0.3 per cent in FY2023 as against 6.1 per cent in FY22.
Imports decreased by 31 percent
Recent data from the Pakistan Bureau of Statistics (PBS) states that imports are set to decline by 31 percent to USD 55.29 billion in FY2023. This is a significant decline from the record high of US$80.13 billion in FY2012.
Meanwhile, export earnings in the import-dependent domestic economy declined by nearly 13 percent to US$27.74 billion during FY2013, compared to US$31.78 billion in FY2012. Despite these challenges, experts said that the performance of Pakistan’s exports in overseas markets exceeded expectations.
Despite inflationary pressures, people in major export markets such as Europe and the US reduced their spending, which led to better-than-expected export figures.
Fahad Rauf, head of research at Ismail Iqbal Securities (IIS), forecast the trade deficit to widen again in FY24 after the government lifted restrictions on imports under conditions laid down for the USD 3 billion loan program by the International Monetary Fund. Could Signed a staff-level agreement with the Government of Pakistan on a US$3 billion “stand-by arrangement” to support the authorities’ immediate efforts to stabilize the economy from external shocks.
The government has set a target of 3.5 percent economic growth
He said that to stabilize and revive the compromised economy from FY23 onwards, the country would need to gradually increase economic activity and target growth in FY24. After experiencing a contraction in fiscal 2013, the government has set a target of 3.5 percent economic growth for the current fiscal.
Rauf clarified that the official report on the full-year growth figures for FY23 is yet to be released, but the government has tentatively reported a nominal growth rate of 0.
3 percent.
Rauf lauded the government’s “conscious decision to live within its means” which resulted in a significant reduction in the trade deficit by 43 per cent in FY2023. He pointed out that the government allowed imports only equal to the flow of export earnings and labor remittances to avoid deficit financing through foreign debt.
This policy not only helped in timely repayment of maturing external debt but also prevented default.
In contrast, the previous finance minister, Miftah Ismail, initially advised businesses to control imports for the first three months of fiscal 2013, anticipating that the revival of the IMF program would allow imports to resume. Will get However, poor implementation of the program’s conditions has led to multiple suspensions, according to the report, which has hindered the reopening of imports throughout the year.
Pakistan’s foreign reserves are around US$ 4 billion.
Pakistan was barely managing its external liabilities as its foreign reserves stood at around US$4 billion while experts warned of default in the coming months.
With the IMF approving its policies, the country will get access to multilateral and bilateral loans to build up its reserves and make long-term plans. The country’s economy has faced a number of challenges in recent times, including devastating floods last year and a spike in commodity prices following the war in Ukraine.
(With inputs from PTI)